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You’ve got a Friend: Referral Programs that Drive New Business

We’ve already discussed the importance of keeping your happiest customers coming back for more, but what does it take to build your customer base beyond your loyal following? It turns out that word-of-mouth marketing is one of the most powerful tools in your arsenal when it comes to new customer acquisition.

While some restaurant and retail chains invest tens of thousands in advertising, social media and paid reviews, the numbers show that people trust their family and friends above all else when choosing a new place to dine. According to SevenRooms’ Influence in the Restaurant Industry report, which references a study conducted by YouGov, 54% of Americans turn to family and friends for restaurant recommendations. In comparison, only a third relies on review sites like Yelp, and a mere 10% look to Instagram.

Statistics from Nielsen reveal a similar conclusion: Word-of-mouth recommendations from friends and family, often referred to as “earned advertising,” remain the most influential form of advertising, with 84% of respondents in 58 countries naming this source as the most trustworthy in an online survey.

In terms of how that translates to buying power, Nielsen found that 77% of consumers are more likely to buy a new product when learning about it from friends or family.

McKinsey similarly found that word of mouth is the primary factor behind 20-50% of all purchasing decision.

Still not convinced that word of mouth matters? Just take a page from the online giants, nearly all of whom rely on friend referrals as a major stream of customer acquisition:

Airbnb boosted booking by over 300% per day

Airbnb managed to boost bookings by over 300% per day by incentivizing friends to invite each other to the platform: When the recipient of a friend referral completes his or her first trip, the referrer and invitee each receive a $25 Airbnb travel credit. The overhaul of Airbnb’s referral program replaced a previously under-performing system, bringing the new program front and center on the company’s website and to its iOS and Android mobile apps

Uber engaged with both users and drivers

Much of Uber’s success can also be chalked up to its referral programs, one for passengers and one for drivers. Both the referring passenger and new invitee receive $20 Uber credits when the new passenger takes his or her first ride. Employees, in turn, get $500 for referring a new driver with rideshare experience or $100 for referring a new driver without relevant experience – quite the incentive! The driver referral program, in particular, has allowed Uber to quickly expand its operations to over 80 countries worldwide.

Dropbox – from 100,000 to 4 million registered users

Dropbox attributes 35% of its daily signups to its referral program, which allowed the company to grow from 100,000 to four million registered users in just four months. That’s 9.76% of monthly growth coming from word-of-mouth referrals. The incentive is simply additional free storage space for the referrers, a resource Dropbox clearly has in abundance.

Are you seeing a pattern? Successful word-of-mouth referral programs are all about rewarding users. That means that you’ll need to get into the spirit of giving to make a referral program work. We are in the midst of the holiday season, after all.

Simply put, in order to make sure your loyal users will recommend you to family and friends, you need to incentivize them. Motivate your customers to advocate for your business by offering points, punch cards, gifts, vouchers or discounts when they bring in new customers. You should also consider providing the new customer with an incentive in order to further drive new business. This can be the same reward as offered to the referring friend, as in the cases of Uber and Airbnb, or a different reward entirely.

A customer engagement platform like Como Sense can make the entire referral and rewards program a breeze to manage with simple-to-use yet sophisticated automation. In creating your own referral program, our platform allows you to choose customized incentives for both parties, limit the number of friends a member can invite (and, thereby, limit the rewards he or she receives), and track your ROI.

Word of mouth may just be the best marketing tool that you aren’t yet using. To get started with a referral program, schedule a demo with Como today.